Qantas profits nosedive 88%

Australian flag-carrier Qantas on Wednesday posted an 88 per cent drop in annual net profit to $96.6 million (Dh354.52 million) and unveiled a massive cost-cutting plan to counter the financial beating.

The carrier, which also recorded its first half-year loss in six years, blamed the worse-than-expected result on weaker domestic and international demand for travel during the global financial crisis.

In response, the airline vowed to slash $1.24 billion of expenditure over the next three years in a bid to boost its ailing bottom line, but was unable to say whether it would remain profitable over the next year.

"There has never been a more volatile and challenging time for the world's aviation industry," Qantas chief executive Alan Joyce said.

Qantas posted a net profit after tax of 117 million Australian dollars ($96.6 million; Dh354.52 million) for the year to June 30, down 88 per cent from 969 million a year earlier. It lost 93 million dollars in the six months to June.

The airline's profit before tax dropped 87 per cent to 181 million Australian dollars from 1.41 billion a year earlier.

Investors reacted positively despite the poor headline figure, with Qantas shares closing up 3.5 per cent at $2.69 on a Sydney market that fell 0.18 per cent overall.

"While on the face of it an 88 percent decline in profits sounds terrible, Qantas is profitable which is more than a lot of airlines can say," IG markets analyst Cameron Peacock said.

"With a view that the industry's most challenging times are behind it, Qantas is well leveraged to a rebound in economic activity."

Joyce said the financial year fell into two contrasting halves – the first showing a generally favourable operating environment and strong demand but the second marred by lower passenger numbers and capacity cuts.

The airline said weakening demand for travel led to a 4.3 per cent decline in yield and a 1.1 per cent drop in passenger load, or seats filled, to 79.6 per cent, forcing the group to cut capacity by 1.9 per cent.

The effects of the economic crisis were compounded by protracted industrial action by Qantas engineers, the swine flu epidemic and costs associated with the firm's introduction of new Airbus A380 superjumbo aircraft.

The airline said it would cut costs by 1.5 billion Australian dollars over the next three years, starting with a target of 500 million dollars in the year to June 2010.

The cost-slashing exercise, dubbed "Q Future," will target inefficiencies in sales, fuel conservation, aircraft use, scheduling and procurement, Joyce said.

"We are also keeping a close watch on oil and fuel prices," he said, adding they were volatile and tending to rise.

The airline said that while passenger volumes appeared to have improved and yields had stabilised at the same level as in the first half of 2009, the economy remained very volatile, making it difficult to foresee future results.

"Given the high level of uncertainty, it is not possible to provide any profit guidance," Joyce said. Qantas said it would not pay a final dividend due to the uncertain outlook.

Joyce said the airline's negotiation of cancellations and delays to aircraft purchases had helped preserve cash reserves.

But Qantas's budget offshoot, Jetstar, helped prop up the results of the group that controls two-thirds of the Australian market.

Jetstar grew its flight network, which includes services to Japan, and increased capacity by 14.4 per cent in a deteriorating market, with Joyce predicting more growth to come.

"Investment in Jetstar over the next 12 months, and beyond, will be significant," he said, heralding the purchase of new Airbus A320 and A330-200 planes for use domestically and to Singapore and New Zealand.

 

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